Monday, September 05, 2016

How can Nigeria manage her recession?

Nigeria will
have to turn to industries other than oil to help pull itself out of recession,
experts say, as the latest sobering government figures reveal that the economy
fell by just over 2 percent in the second quarter.

The overall
decline of Nigeria's economy is - gross domestic product (GDP) fell 2.06
percent in the second quarter - largely attributed to the global drop in the
price of oil, which saw growth of -17.48 percent in real terms in the same
period.

IMF data projects
a -1.8 percent change in real GDP for 2016. This would be the first annual
decline in over twenty years, and the worst annual recession to have hit the
country since 1987, when GDP growth dropped to -10.8 percent.

But, as dark
clouds threaten, how will the country cope?

Loans and bonds, foreign spending

After the
bad economic news was delivered, Nigeria's finance minister Kemi Adeosun
announced that the government had approved a three-year plan to borrow more
from abroad, Reuters reported. She also said that Nigeria had to tackle
structural problems that had stoked inflation and that interest rate hikes were
not the answer.

The
government has so far spent more than 400 billion naira in capital expenditure
this year, part of a record 6.06 trillion naira ($30 billion) budget for 2016,
Adeosun said last week - as reported by Reuters.

Nigeria plans
to borrow as much as $10 billion from debt markets, with about half of that
coming from foreign sources. Funds from this Eurobond would be spent on power
transmission projects, solid mineral development and agriculture.

The
medium-term borrowing plan, which covers 2016-2019, will now be sent to
parliament for approval, Reuters reported.

Rescue sectors

Nigeria's
finance minister stressed the importance of diversifying the economy. "We
have to grow our non-oil economy," she said, according to Reuters.

According to
a note by Renaissance Capital, agriculture and telecoms are two of the bigger
economic sectors which saw growth in the second quarter of this year, though
this was slower than previously.

Agriculture,
which accounts for one fifth of Nigeria's GDP, saw growth of 2.5 percent in the
second quarter of this year, said Renaissance Capital's note. But, while this
was down 0.7 percent year on year, Yvonne Mhango, a Sub-Saharan Africa economist
behind Renaissance Capital's note, told CNBC via telephone that the
organisation was "not expecting negative territory for crop
production."

As for the
promise of telecoms, Mhango explained that the sector was "still
growing."

Nigeria's
services sector, which is worth 50 percent of GDP, shrank by 1.3 percent year
on year in the second quarter of 2016, according to Renaissance Capital's note.
The sector's decline can partly be attributed to zero percent year-on-year
growth of its largest subsector, wholesale and retail trade, explained the
note. But, Mhango was positive, and said that the second quarter "was the
first time services saw a contraction," and because "its decline is
not as deep [as elsewhere] – it has the best prospect of recovering."

With regards
to Facebook chief executive Mark Zuckerberg's visit to Nigerian tech start-ups
last week, Mhango was also upbeat, and explained that in Nigeria's current
climate of a squeezed job market and high unemployment, tech "allows for
entrepreneurs to exist," which is "great in terms of [allowing them
to] generate more income for themselves."